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Social Security Reform: 4 Surprising Solutions Americans Favor

Some have called Social Security the third rail of politics, where those who suggest change threaten to end their political careers. But a recent study that surveyed Americans about Social Security found widespread support for several major changes to the program.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about the study from the Voice of the People, which surveyed hundreds of representative Americans about Social Security. Dan notes that the survey found strong majority support for measures like cutting benefits for the top quarter of income earners in retirement, raising the full retirement age to 68, raising the wage cap for Social Security taxes by $100,000, and raising the payroll tax from 6.2% to 6.6%. Dan concludes that with many people willing to see changes that would potentially cost them money, now might be the best time to move forward with reform efforts.

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Our so-called representatives our so busy looking for ways to cut,and do away with SS,they haven't asked us what we want!We want our SS saved,and made solvent,and put into a untouchable account that can't be touched by Congress,something that should have been done from the beginning ! I am sure if you asked the same question about Medicare,they would say the same.

Right now the payroll in and Retiree checks out are about even.....Any meaningful change would start creating even more savings in social security... The government would spend it all and leave more I.O.U.'s.....So it would be a waste of time......No fix will be made until the social security payments out are about 10% short and lots of I.O.U bonds are being cashed in....Then you will hear every crazy idea you can think of instead of these thoughtful ones...

Just can't understand the view that SS money should be put in some kind of a lock box that would prevent Congress from borrowing the money. Right now, SS is getting billions a year in interest on the money borrowed. Yes, it is in the form of more bonds, but so what? What other investment would be safer? Not allowing Congress to borrow that money and keeping it in a lock box would only mean that the trust fund would run out of money much sooner, maybe would have already. Not loaning out the excess cash would be akin to putting your savings under your mattress.

The powerful and wealthy elites (top 5%) who run this country are shocked that not everyone is jumping on their bandwagon to cut Social Security and Medicare benefits.

They view these benefits as abstractions. After all, if you're worth millions, social insurance programs aren’t going to matter very much to you.

But a large majority of the American people have a very different view. To them, Social Security and Medicare aren’t an abstraction, but are regarded as "highly personal".

They know — without ever quite articulating it in this way — that Social Security and Medicare are the most valuable assets they possess. That’s why they are so protective of these programs, despite the best efforts of some to persuade them that the nation’s future depends on pruning them back.

For most people, the value of the pensions and health care they’ll get in retirement far exceeds the value of all the rest of their wealth, including the equity in their homes, the money they have in the bank, and any funds they’ve been able to sock away in retirement accounts.

If we add up all the wealth, personal and social, the typical household beginning retirement has about $850,000 in assets. That sounds pretty good, but most of the wealth (76%) was held socially, in Social Security, in Medicare or in "defined-benefit pensions" such as workplace retirement plans and 401K's. Just "5%" of the wealth was liquid.

These families rely almost exclusively on the benefits earned in a lifetime of working that were held in trust for them by the government or by a company or union pension plan. (These defined-benefit plans are rapidly disappearing, and few workers are saving enough elsewhere to make up for the loss.)

The fact that so much of this wealth is social wealth, not personal wealth, is a good thing in many respects. Social wealth is a form of insurance. The risks are spread out among many people, not just a nuclear family unit. It insures against longevity risk (the possibility of outliving your assets), market risk (the value is largely unaffected by the temporary ups and downs of the market), and inflation risk (Social Security and most defined-benefit pensions have a cost-of-living adjustment). It also insures against disability.

The wealthiest 5% of Americans have personal net worth of about $2 million, which means their Social Security and Medicare benefits are simply the cherry on top of their retirement savings.

@grumpy: there has been a cap on SS wages since 1937 when SS was enacted. For many years the cap was $3,000, adjusted for inflation that would be $48,000 today, the current cap is $117,000. The reason for the cap is that SS benefits are capped. It is not the people making millions who would be primarily affected by eliminating the cap, it would be employers (who have to match) and the self-employed who have to pay 12.4% of earning to SS.

Social Security is self-financed, cannot borrow, spends less than one percent on its administrative costs, has a $2.6 trillion surplus which will continue to grow for a number of years, and is off-budget. It does not contribute to the federal deficit or the debt.

The Social Security surplus is invested in US Treasuries which enables the federal government to borrow less from other sources. The government borrows these Social Security funds to pay for other government spending -- but is obligated to pay interest on these borrowings -- and pay back the borrowed funds in full when they are needed by Social Security for benefit payments.

Social Security can pay full benefits until 2037, at which time, if nothing were done to strengthen its financing, Social Security would still be able to pay about 78 percent of benefits.

There are a number of ways to shore up the program’s underlying finances without cutting into benefits. For example, raising the cap on wages subject to payroll taxes from its current $113,700 for 2013 to around $250,000 extends the projected date of 2033 for exhausting the system’s reserves for another four decades or so. Eliminating the cap altogether essentially gets rid of any funding shortfall for the next 75 years.

Of course, the Social Security "money should be put in some kind of a lock box that would prevent Congress from borrowing the money" unlike what the person who wrote this says. The reason the program is in this mess is Congress and the White House's sticky fingers. If the money being "in the form of more bonds" were such a good idea why is the program in such danger? Problem number two, people who somehow can't see reality. There should be NO cap on income, in fact all perks should also be counted as income. Last and not least, ALL federal, state and local employees should be required to pay payroll taxes, starting with the president. Let every one be part of the "equal" mentioned in the Constitution.

Caplinger, SocSec is a PONZI scheme. It should be totally abolished, fazed out for everyone. Of course the 75% in lower income want to steal from the rich. It is ingrained in them from birth, school system, etc.

And the majority of people under 55 see no problem in raising age limits to 66 because they can't see that far into the future when their head is watching Reality TV.

Why aren't you educating people? Let me give you an example.

Follow me on this:

1. At age 25 Josephine gets a job paying her $20,000 a year.

2. The "payroll tax", SocSec is 6.2%. That equals $1,240 that our caring, loving gov't takes from us to save for our retirement. They make the company match this. So 1,240 + 1,240 equals $2,480 that is put away for us each year until we turn 62. Our gov't is so caring!!

3. Stay with me here. Let's say Josephine works until she is 62. And NEVER gets a raise. So she makes $20,000 a year for 37 years. That means $2,480 is put away for her for each of 37 years.

4. Let's say we have a fixed income account that draws 5% every year.

5. Guess what if Josephine was allowed to do this she would have at age 62 -- Get ready!! $264,639.67. This would be a lump sum that is ALL Hers.

I ask you what would you rather have a monthly stipend from UNCLE SAM or a lump sum of $260,000 plus at age 62.

So Caplinger you could use your videos to educate people on compounding interest as opposed to how our gov't is so good to us.

When you or anyone else tries to make SocSec out like it some wonderful program, it gripes me.

I don't know about you but I would love to be allowed to invest my SocSec money the way I WANT too not the Federal Gov't.

Sending report...

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
Follow @DanCaplinger